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MALAYSIA AND THE ASEAN Charting a Bold Course towards Economic Integration

By: Kyle Krebs, Jasmin Mei Regis, & April Soller

ASEAN Law Elective | Atty. Aris Gulapa

TABLE OF CONTENTS

Page

I. II. III. IV. V. VI. VII. VIII. IX. X. XI. XII.

MALAYSIAS ACCESSION AND MEMBERSHIP IN ASEAN .... ASEAN AGREEMENTS IMPLEMENTED............................................................................

1 2 8 8 9 10 10 11 11 12 12 14

EASE OF DOING BUSINESS WORLD RANKING ..............................................................


THE MINIMUM REQUIREMENTS FOR INVESTMENT........................................................ MINIMUM CAPITALIZATION REQUIREMENT AND TAXES DUE..................................... INCORPORATION PROCEDURE............................................................................ . ANNUAL REQUIREMENTS................................................................................................. LIMIT ON FOREIGN OWNERSHIP...................................................................................... INCENTIVES FOR INVESTMENT......................................................................................... LEGAL PRACTICE AND LAND OWNERSHIP IN MALAYSIA ............................................... MALAYSIAS SINGLE WINDOW......................................................................................... MALAYSIAS COMPETITION POLICY.................................................................................

ASEAN Law Elective | Atty. Aris Gulapa

I. MALAYSIAS ACCESSION AND MEMBERSHIP IN ASEAN The formation of ASEAN as a regional organization is rooted in the long and gradual process of development of regional organizations in Asia. After World War II, many organizations or alliances were formed in Asia to meet different objectives and situations. Malaysia, for its part, was a participant/member of many of these organizations, such as the Asian Relations Conference in 1947, Association of Southeast Asia (ASA) in 1961, and although not a member of MAPHILINDO, Malaysia was the reason of why such was formed.1 This history reflects the major role Malaysia has played in the formation of regional blocks in Asia, be it as an active proponent or as the center of the issues dealt with. Even in the development of ASEAN, Malaysia is considered as a key player. Malaysia is among the ASEAN-5- member-states considered as pioneers of the ASEAN, not only for being the signatories of the Bangkok Declaration in August 1967 which created the ASEAN2; but also for taking the lead in the implementation of various agreements among ASEAN member-states. Of critical significance in the development of ASEAN, is the passing of the ASEAN Charter. Malaysia ratified the Charter in February 14, 2008 and the instrument of ratification was deposited in February 20, 2008.3 Since its ratification, Malaysia has complied with several undertakings set out in the Charter, such as the formation of ASEAN-Malaysia National Secretariat formally instituted on March 9, 20094; and to provide representation in the ASEAN Committee of Permanent Representatives, the Permanent Mission of Malaysia to ASEAN (PTM ASEAN) was established in Jakarta, Indonesia on January 12, 2009.5

Chapter 1: From Settlements to Southeast Asia to Regionalism The ASEAN Way: Its Nature and Origins 3 Press Release - Brunei Darussalam, Malaysia, and Lao PDR Ratify the ASEAN Charter 20 February 2008, http://www.asean.org/news/item/press-release-brunei-darussalam-malaysia-and-lao-pdr-ratify-the-asean-charter-20-february-2008 l, last accessed: February 27, 2013. 4 ASEAN-Malaysia National Secretariat http://www.kln.gov.my/web/guest/dd-asean_malaysia, last accessed: February 27, 2013. 5 Permanent Representative of Malaysia presents letter of credence to Secretary General of ASEA., Official Website of Permanent Mission of Malaysia to the ASEAN, http://www.kln.gov.my/web/idn_asean-jakarta/n2012/-/asset_publisher/ME2g/blog/permanentrepresentative-of-malaysia-to-asean-presents-letter-of-credence-to-secretary-general-of-asean?redirect=%2Fweb%2Fidn_aseanjakarta%2Fn2012, last accessed February 27, 2013.
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II. ASEAN AGREEMENTS IMPLEMENTED ASEAN Free Trade Agreement (AFTA) ASEAN FTA: CEPT Scheme The creation of the AFTA was agreed at the 1992 ASEAN Summit in Singapore, essentially for the purpose of creating a single market and international production base using the Common Effective Preferential Tariff (CEPT) Scheme.6 The liberalization of trade in the region is undertaken though the elimination of intra-regional tariffs and non-tariff barriers. Under the CEPT Scheme, effective January 1, 2010, ASEAN 6 member states (which include Brunei, Indonesia, Malaysia, Philippines, Singapore and Thailand) should be a complete free trade area or a 0% tariff rate. In 2005, the ASEAN 6 included 98.5% of its products into the CEPT. Of these included products, 98.9% had 0-5% duties.7 As of 2010, under the CEPT Scheme, the ASEAN 6 has 99.11% of tariff lines in the Inclusion List at 0% and only 0.35% of the tariff lines in the Inclusion List have import duties. 8 In the case of Malaysia, with the transfer of products previously placed in the Highly Sensitive List (HSL) and Temporary Exclusion List (TEL) 99.3% of the products were eventually phased-in into the CEPT Scheme; the 0.7% of these products is permanently excluded.9 Based on the 2010 Schedule of Tariffs under the CEPT of Malaysia, these products comprise of alcoholic beverages and arms and ammunitions.10

CEPT Scheme vis--vis the ASEAN Trade in Goods Agreement (ATIGA) In August 2007, during the 39th ASEAN Economic Ministers Meeting, member states agreed to enhance the CEPT Scheme for AFTA into a more comprehensive legal instrument through the ATIGA.11 The ATIGA entered into force on May 17, 2010 and is considered to supplant certain ASEAN agreements relating to trade in goods such as the CEPT Agreement.12 Among the key provisions in the ATIGA are the streamlining and consolidation of all provisions in the CEPT-AFTA and protocols relating thereto, procedural and other mechanisms to further ensure realization of free flow of goods in ASEAN such as Rules of Origin, trade facilitation and customs standardization
Agreement on the Common Effective Preferential Tariff Scheme for the ASEAN Free Trade Area, signed: January 28, 1992. AFTA. Official Website of the Malaysian Ministry of International Trade and Industry, http://www.miti.gov.my/cms/content.jsp?id=com.tms.cms.section.Section_8de83760-7f000010-72f772f7-f5047602 last accessed: February 27, 2013. 8 Ibid. 9 Ibid. 10 Tariffs under 2010 CEPT Package: Malaysia, http://www.ditp.go.th/aec/attachments/article/296/2010-Malaysia.pdf last accessed: February 27, 2013. 11 Fact Sheet: ATIGA (17 May 2010), http://www.asean.org/archive/Fact%20Sheet/AEC/2010-AEC-025-2.pdf , last accessed: February 27, 2013. 12 Ibid.
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measures, and establishment and codification of measure to eliminate and monitor non-tariff measures (NTMs).13 In the case of Malaysia and its implementation of the ATIGA in relation to the CEPT, although it considers ATIGA to have superseded the CEPT Agreement14, in terms of the tariff schedules, no significant changes have really been made except that of nomenclature reclassification of certain products. Due to the reclassification of products, the ATIGA includes more product lines in its tariff schedules, but these additional product lines have 0% tariff. Given this, under the 2011 ATIGA Tariff Schedules, Malaysias percentage compliance in elimination of tariff duties is reduced to 98.69% of its tariff lines, although there are really no changes in the products with duties.15 Specifically, under the ATIGA, 66 tariff lines or less than 1% (0.54%) covering tropical fruits, tobacco and rice products have 5-20% duties; and 96 tariff lines covering alcoholic beverages (58) and weapons and arms (38) are in its exclusion list.16

Thus, under the CEPT Scheme and the ATIGA Tariff Schedule the following are the restricted products:17

Ibid. Questions for ATIGA, Official Website of the Malaysian Ministry of International Trade and Industry, http://www.miti.gov.my/cms/content.jsp?id=com.tms.cms.article.Article_206eda33-c0a8156f-50c650c6-5087b3c5, last accessed: February 27, 2013. 15 Supra note 7. 16 Ibid. 17 Supra note 10.
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ASEAN Framework Agreement on Services (AFAS) The AFAS was signed in 1995 and basically involves three measures- Service Equity Liberalization, Negotiation of Specific Commitments and Mutual Recognition Arrangements (MRA).18 Under this framework member states agreed to draw up a plan from 2007 to 2015 to liberalize the services sector to complement the goods sector.19 Services Liberalization In service liberalization, ASEAN countries undertake to eliminate all existing discriminatory measures and market access limitations, and prohibit the imposition of new ones.20 The liberalization covers 4 modes of services supply.

Of these modes, member states agree to specific equity liberalization thresholds over a period of time, which include: 1. Elimination of restrictive regulations and barriers for Modes 1 and 2; 2. Increase foreign (ASEAN) equity participation under Mode 3; and

3. Improve the offer for movement of natural persons.21 In the case of Malaysia, 6 Packages on equity liberalization ranging from 30% to 100% foreign ownership have been offered covering the following services sectors: Healthcare; Tourism and Travel Related Services; Computer and Related Services; Telecommunication; Business and professional services; Distribution Services; Construction and related services; Maritime Transport; Education; and Transport.22
ASEAN Framework Agreement in Services, signed: December 15, 1995. Services, Official Website of the Malaysian Ministry of International Trade and Industry, http://www.miti.gov.my/cms/content.jsp?id=com.tms.cms.section.Section_40d8f9f4-c0a8156f-628f628f-2ee0a5ab, last accessed, March 1, 2013. 20 Art. III, ASEAN Framework Agreement in Services, signed: December 15, 1995. 21 Supra note 19. 22 Ibid
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As of October 20, 2010, the 8th Package of Commitments under the AFAS was adopted covering Market Access Limitation on Acquisition, Mergers and Take-overs and National Treatment Limitation on Land Property and Real Estate in Commercial Presence (mode 3) supply; and Entry and Temporary Stay for Intra-Corporate transferees in Movement of Natural Persons (mode 4) supply.23 By 2013, foreign equity shareholdings is targeted to be increased to 70% with no limitations on crossborder (mode 1) and consumptions abroad (mode 2) supply. ASEAN Mutual Recognition Arrangements (MRAs) Apart from the equity liberalization mechanism, MRAs for the facilitation of mobility of professionals and exchange of information to promote adoption of best practices on standards and qualifications of professionals have been concluded in different service areas.24 MRAs can be concluded bilaterally or multilaterally/plurilaterally. Malaysia under the ASEAN framework, has undertaken the following MRAs: Engineering Services; Nursing Services; Architectural Services Framework MRA for Surveying Qualifications; Medical Practitioners Services; Dental Practitioners; and Framework MRA for Accountancy Services.25 In general, even with the adoption of AFAS, as among other member states, Malaysia is still considered to have one of the most protected services sector. Over 188 different types of restrictive measures are used in Malaysia, which is one of the highest among ASEAN countries.26

Member Countries' Horizontal Commitments, Schedules of Specific Commitments and the List of Most-Favored Nation Exemptions: Annexes to the Protocol to Implement the Eighth Package of Commitments under the ASEAN Framework Agreement on Services, <http://www.asean.org/news/item/member-countries-horizontal-commitments-schedules-of-specific-commitments-and-the-list-ofmost-favoured-nation-exemptions> , last accessed: March 1, 2013. 24 ASEAN Framework Agreement on Mutual Recognition Arrangements, signed: December 16, 1998. <http://www.asean.org/news/item/asean-framework-agreement-on-mutual-recognition-arrangements-2>, last accessed: March 1, 2013. 25 Supra note19. 26 Liberalization Of The Services Sector Will Not Hamper Bumiputera Participation In The Services Sector. Official Website of the Malaysian Ministry of International Trade and Industry, <http://www.miti.gov.my/cms/content.jsp?id=com.tms.cms.article.Article_37dd4cb8-c0a81573-15da15da-e4b9c75b> , last accessed: March 1, 2013.
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ASEAN Industrial Cooperation Scheme (AICO) AICO Scheme is another initiative to promote resource sharing among ASEAN-based companies, through industrial cooperation. Companies exporting under the AICO Scheme are exempted from import duty and able to enjoy full liberalization of tariff rate earlier.27 For Malaysia, a total of 71 projects, valued at US$781.2 million have been approved in 2007 in various sectors including automotive, agriculture and food processing sectors. To date, Malaysia has a total of 34 AICO arrangements with Thailand, followed by Indonesia, 20, the Philippines, 16 and Viet Nam, 1.28

ASEAN-JAPAN Comprehensive Economic Partnership (14 April 2008)29 The partnership includes Trade in Goods and separate chapters on Services, Investment, Rules of Origin (ROO), Sanitary and Phyto-Sanitary (SPS), Technical Barriers to Trade (TBT), Dispute Settlement Mechanism (DSM) and Economic Cooperation. As of February 1, 2009 Agreements in Trade in Services and Investment have been implemented by Malaysia and as of July 2011 the 4 th Dialogue on simplification of procedures for trade facilitation are being undertaken. ASEAN-INDIA30 The ASEAN-India Agreement involved agreements on trade in goods and services. The FTA in Goods was signed on August 13, 2009, but became effective 2010; while agreements on Trade in Services are still being negotiated as of 2011. The FTA in Goods involves a 4-track modality: o Normal Track (NT): 80% of tariff lines and 75% of trade value of imports o Sensitive Track (ST): 10% of tariff lines o Highly Sensitive Track (HST): India has placed crude and refined palm oil, coffee, black tea and pepper in the HST o Exclusion (EL): India included 489 tariff lines , which do not exceed 5% trade value of imports on bilateral basis; while Malaysia has excluded 361 tariff lines. ASEAN-CHINA Comprehensive Economic Cooperation (4 November 2002)31 The Framework Agreement that came into force on 1 July 2003 is an umbrella Agreement that provides general provision on the establishment of an ASEAN-China Free Trade Area (ACFTA) within 10 years by pursuing progressive elimination of tariffs and non-tariff barriers; progressive liberalization of trade in services and investment; strengthen trade facilitation measures; and economic co-operation in areas of common interest. On the Agreement in Trade in Goods, 2 tracks are involved- Normal Track and Sensitive Track. Under the Normal Track, ASEAN-6 and China are required to reduce tariffs to 0-5% on 40% of their products by 2005 and 60% of their products by 2007. Extended timeframe for tariff elimination of up to 2012 will be given for not more than 150 tariff lines. For the Sensitive Track, Sensitive List (SL) duties will be reduced to 20% by 2012 and to 0-5% by 2018; while duties for Highly Sensitive List (HSL) will be reduced to 50% by 2015. No further tariff cut commitments are undertaken after these

Supra note 19. Ibid. 29 ASEAN-Japan, Official Website of the Malaysian Ministry of International Trade and Industry, <http://www.miti.gov.my/cms/content.jsp?id=com.tms.cms.section.Section_b61a7c53-c0a81573-aba0aba0-cfd2f858>, last accessed: March 1, 2013. 30 ASEAN-India, Official Website of the Malaysian Ministry of International Trade and Industry, <http://www.miti.gov.my/cms/content.jsp?id=com.tms.cms.section.Section_5b6c1f18-c0a81573-5e075e07-e8b20263>, last accessed March 1, 2013. 31 ASEAN-China, Official Website of the Malaysian Ministry of International Trade and Industry, http://www.miti.gov.my/cms/content.jsp?id=com.tms.cms.section.Section_b609671a-c0a81573-aba0aba0-c94c2e0c>, last accessed: March 1, 2013.
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schedules. To date, Malaysia has 701 products in the Sensitive Track, of which 416 are in the SL and 285 in the HSL. Under ASEAN-China Trade in Services, the agreement was signed on 14 January 2007. First package of liberalization commitment was implemented on 1 July 2007. Malaysia's liberalization commitments under the First Package include sectors such as architecture, engineering, telecommunications, financial services, education, health and tourism. The Agreement excludes services liberalization pertaining to government procurement and government related services. Negotiations on the second package of liberalization commitment have been completed and a Protocol to Implement the Second Package of Specific Commitments was signed on 16 November 2011. ASEAN-EU FTA (May 2007)32 The ASEAN-EU Joint Committee has met three times to develop the details of the modalities, work programme and time schedule for negotiating the ASEAN-EU FTA. Negotiations were paused in 2009. The EU is now pursuing bilateral FTAs with individual ASEAN member states. FTA negotiations with Malaysia were scheduled to commence in early December 2011. ASEAN-KOREA Comprehensive Economic Cooperation ( 13 December 2005)33 ASEAN-Korea Cooperation includes FTA for Trade in Goods, Trade in Service Agreement, Trade in Investment Agreement and Economic Cooperation. FTA for Trade in Goods is to be realized by 2012 for ASEAN-6 and 2018 for Vietnam and 2020 for Cambodia, Lao PDR and Myanmar. The first tranche of tariff reduction/elimination began on June 1, 2007. The modalities for tariff reduction for products agreed by ASEAN and Korea are: Normal Track, whereby, for the ASEAN-6 tariffs will be eliminated in 4 phases beginning July 2006 and concluded by 2012; and Sensitive Track, whereby, duties will be reduced to 0-5% by January 1, 2016 and products included under this track has a maximum ceiling of 10% of all the tariff lines and 10% of the total value of imports. Under the Trade in Service Agreement, Malaysia is expected to gain leverage in penetrating Korea's services market in competitive sectors such as construction, engineering, financial services and Information Communication and Technology (ICT). Malaysia also chairs the Working Group on Economic Cooperation. The Working Group meets twice a year. ASEAN-Australia-New Zealand FTA (AANZFTA) Agreement (27 February 2009)34 The agreement focuses on areas of trade and investment facilitation measures; technical assistance; and capacity building activities. The FTA have been implement on January 1, 2010 with the following schedules of commitments agreed upon- Schedule of Tariff Commitments by 2011 to 2020, Schedules of Specific Service Commitments, and Schedules of Movement of Natural Persons Commitments.

ASEAN-EU, Official Website of the Malaysian Ministry of International Trade and Industry, <http://www.miti.gov.my/cms/content.jsp?id=com.tms.cms.section.Section_56f96b15-c0a81573-12831283-5eef584e>, last accessed: March 1, 2013. 33 ASEAN-Korea, Official Website of the Malaysian Ministry of International Trade and Industry, <http://www.miti.gov.my/cms/content.jsp?id=com.tms.cms.section.Section_b61fd109-c0a81573-aba0aba0-127b6e96>, March 1, 2013. 34 ASEAN-Australia-New Zealand, Official Website of the Malaysian Ministry of International Trade and Industry, <http://www.miti.gov.my/cms/content.jsp?id=com.tms.cms.section.Section_b6060aa9-c0a81573-aba0aba0-4db48447>, last accessed: March 1, 2013.
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III. EASE OF DOING BUSINESS WORLD RANKING

Economy Singapore Malaysia Philippines

Ease of Doing Business Rank 1 12 138

Starting a Business 1 8 22

Dealing with Construction Permits 2 17 18

Getting Electricity 2 6 12

Registering Property 7 6 19

Getting Credit 3 1 16

Protecting Investors 1 3 18

Paying Taxes 2 4 24

Trading Across Borders 1 3 8

Enforcing Contracts 2 6 16

The chart above surveyed by The World Bank depicts that in 2012, Malaysia ranks number 12 among 185 countries surveyed in the category of ease of doing business.35 Ease of doing business would refer to the overall rate of the simplicity and expediency of the procedures and processes relative to the setting up of a business, as well as the regulations of businesses incorporated or registered in a particular country. The ranking of 12 out of the 185 countries, in which Malaysia ranks second in Southeast Asia next to Singapore, say much about the positive business relations in Malaysia. The government, through its agencies and with the continuous expansion of its economic programs36 has been successful in simplifying and expediting the procedures of business dealings in relation to its investors. In addition, Malaysia consistently places the second highest in Southeast Asia next to Singapore, in reference to the same survey,37 with regard other matters which are in connection with investor relations, to wit: the ranking of the ease of starting a business and of protecting investors, in which Malaysia ranks number 8 and 3 out of 185 countries, respectively.38

IV. THE MINIMUM REQUIREMENTS FOR INVESTMENT

It is true enough that Malaysia claims to be expedient in processing business registrations and requests for certifications of incorporation, since the overall registration process which ends in the issuance of a Certificate of Incorporation may be completed in 2-3 working days.39 A foreign investor may do business in Malaysia in two ways.40 An investor may either incorporate a local company or register the foreign company in Malaysia, both with the Companies Commission of Malaysia or the SSM.41 To start with the registration procedure, the company must be organized with named directors, shareholders and a corporate secretary.42 There has to be at least two directors who are natural persons and who, are either citizens of Malaysia, permanent residents or foreigners who have been issued

35

The World Bank, Economy Rankings, Doing Business: Measuring Business Relations 2012, available at http://www.doingbusiness.org/rankings last accessed 6 March 2013). 36 Malaysian Investment Development Authority, Invest in Malaysia: Your Profit Centre in Malaysia, available at http://www.mida.gov.my/env3/index.php?page=invest-in-malaysia (last accessed 6 March 2013). 37 The World Bank, Economy Rankings, Doing Business: Measuring Business Relations 2012, available at http://www.doingbusiness.org/rankings (last accessed 6 March 2013). 38 Id. 39 Id. 40 Suruhanjaya Syarikat Malaysia, Foreign Company Registration Guidelines, available at http://www.ssm.com.my/en/company/incorporation-offoreign-company (last accessed 6 March 2013). 41 Id. 42 Guide Me Singapore, Setting Up a Company in Singapore vs Malaysia, available at http://www.guidemesingapore.com/researchreports/malaysia/company-setup-singapore-vs-malaysia (last accessed 2 March 2013).

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a Malaysian Employment Pass.43 There is no limit as to the number of directors, but all of whom must be at least 18 years of age, not bankrupt and were not convicted of any malpractices.44 At least two of the directors must be a local resident of Malaysia.45 A Malaysian Employment Pass is issued by The Expatriate Committee (EC) to a qualified expatriate under the Expatriate Programme of Malaysia.46 For a foreigner to be qualified to work in Malaysia, his company must comply with the minimum paid- up capital depending on the ownership of the company.47 Accordingly, if the company is wholly foreign owned, it must have a minimum paid-up capital of RM 500,000; RM 250,000 if the company where the expatriate is employed is 100% locally owned and a minimum paid-up capital of RM 350,000 if the company-employer is owned by both foreign and local stockholders.48 In addition to this, for an expatriate to be qualified to be issued with an employment pass, he must be employed either as a top manager, a professional or mid-level manager or a highly skilled employee occupying a non-executive post in a foreign owned company based in Malaysia,49 earning a salary of at least RM 2,500.50 The Companies Commission of Malaysia also requires the incorporating entity to have a minimum of two shareholders.51 These shareholders may be a natural or juridical person, and may be the same or different with the registered directors.52 The shareholders of a Malaysian company, as an advantage, cannot be liable for company debts beyond their amount of subscription, unless there has been fraud or malpractice employed by the company.53 There also has to be a Company Secretary who must be a natural person and a local resident of Malaysia. The registered Secretary must be: either a member of a professional body prescribed by the Minister of Domestic Trade and Consumer Affairs or licensed by the Companies Commission of Malaysia. 54

V. MINIMUM CAPITALIZATION REQUIREMENT AND TAXES DUE A company incorporated with the Companies Commission of Malaysia, aside from the required company officers, must also comply with capitalization requirements. A minimum paid- up capital of RM 500,000 has to be paid upon incorporation by a foreign company engaged in consultancy business and RM 1,000,000 for foreign companies involved in import, export, restaurant and trading businesses.55

43 44

Id. Id. 45 Malaysia Business Advisory, Incorporating Malaysian Company Sdn Bhd, available at http://malaysiabizadvisory.com/incorporatingmalaysian-company-sdn-bhd/ (last accessed 7 March 2013). 46 Angloinfo: The Global Expat Network Malaysia, Employm ent Pass for Expatriates, available at http://malaysia.angloinfo.com/ working/ work -p ermits/ employment -pass/ (last access ed 6 March 2013). 47 Guide Me Singapore, Setting Up a Company in Singapore vs Malaysia, available at http://www.guidemesingapore.com/researchreports/malaysia/company-setup-singapore-vs-malaysia (last accessed 2 March 2013). 48 Id. 49 Angloinfo: The Global Expat Network Malaysia, Employm ent Pass for Expatriates, available at http://malaysia.angloinfo.com/ working/ work -p ermits/ employment -pass/ (last access ed 6 March 2013). 50 Guide Me Singapore, Setting Up a Company in Singapore vs Malaysia, available at http://www.guidemesingapore.com/researchreports/malaysia/company-setup-singapore-vs-malaysia (last accessed 2 March 2013). 51 Malaysia Business Advisory, Incorporating Malaysian Company Sdn Bhd, available at http://malaysiabizadvisory.com/incorporatingmalaysian-company-sdn-bhd/ (last accessed 7 March 2013). 52 Guide Me Singapore, Setting Up a Company in Singapore vs Malaysia, available at http://www.guidemesingapore.com/researchreports/malaysia/company-setup-singapore-vs-malaysia (last accessed 2 March 2013). 53 Malaysia Business Advisory, Incorporating Malaysian Company Sdn Bhd, available at http://malaysiabizadvisory.com/incorporatingmalaysian-company-sdn-bhd/ (last accessed 7 March 2013). 54 Guide Me Singapore, Setting Up a Company in Singapore vs Malaysia, available at http://www.guidemesingapore.com/researchreports/malaysia/company-setup-singapore-vs-malaysia (last accessed 2 March 2013). 55 Malaysia Business Advisory, Incorporating Malaysian Company Sdn Bhd, available at http://malaysiabizadvisory.com/incorporatingmalaysian-company-sdn-bhd/ (last accessed 7 March 2013).

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An incorporation fee has to be paid to the Inland Revenue Board of Malaysia (IRBM) depending on the authorized capital of the corporation.56 As part of the incorporation procedure, companies with annual company turnover exceeding RM 100,000 must also register with the IRBM for Sales and Service Taxation.57

VI. INCORPORATION PROCEDURE

When the company has completed all the prescribed requirements, the company name has to be applied with the Companies Commission of Malaysia.58 A form denominated as Request for Availability of Name must be filed,59 simultaneous with the Name Search that must be conducted to ensure that the name applied is not confusing or deceptive.60 If it is a foreign company applying for the company name, the name registered with its country of origin must be the name used and applied for in Malaysia.61 A minimal fee of RM 30 must be paid for each name applied and such name, upon approval, must be reserved for three months.62 Within the period of reservation of the company name applied, the next incorporation procedure must be complied with. The applicant must submit all the required documents with the Companies Commission of Malaysia.63 These requirements are to wit: the Stamped Memorandum and Articles of Incorporation, paid at a value of RM 100 per stamp; Statutory Declaration by a Director before Appointment (Form 48A); Declaration of Director or Promoter under Oath; Declaration of Compliance with the Requirements which should be signed by the company secretary; the Company Name Approval Certificate issued by the Companies Commission of Malaysia.64 Once the requirements have been completed and filed as required, the Companies Commission of Malaysia shall then issue a Certificate of Registration to the corporation.65

VII. ANNUAL REQUIREMENTS

Once the business has been incorporated, the government requires that certain reportorial and accountability requirements have been complied with. An Annual General Meeting (AGM) must be held within 18 months from the date of incorporation or within six months from the financial year end,

56

Malaysian Investment Development Authority, Invest in Malaysia: Your Profit Centre in Asia, available at http://www.mida.gov.my/env3/ (last accessed 6 March 2013). 57 Guide Me Singapore, Setting Up a Company in Singapore vs Malaysia, available at http://www.guidemesingapore.com/researchreports/malaysia/company-setup-singapore-vs-malaysia (last accessed 2 March 2013). 58 Malaysian Investment Development Authority, Invest in Malaysia: Your Profit Centre in Asia, available at http://www.mida.gov.my/env3/ (last accessed 6 March 2013). 59 Guide Me Singapore, Setting Up a Company in Singapore vs Malaysia, available at http://www.guidemesingapore.com/researchreports/malaysia/company-setup-singapore-vs-malaysia (last accessed 2 March 2013). 60 Suruhanjaya Syarikat Malaysia, Foreign Company Registration Guidelines, available at http://www.ssm.com.my/en/company/incorporation-offoreign-company (last accessed 6 March 2013). 61 Id. 62 Suruhanjaya Syarikat Malaysia, Foreign Company Registration Guidelines, available at http://www.ssm.com.my/en/company/incorporation-offoreign-company (last accessed 6 March 2013). 63 Id. 64 Id. 65 Id.

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whichever is earlier.66 Subsequent AGMs must be held 15 months after the first AGM and yearly thereafter or six months from financial year end and yearly thereafter.67 Annual returns and audited annual accounts must also be filed with the Companies Commission within a month from the AGM held.68 However, companies with shareholders not exceeding 20 persons, although exempt from the filing of the returns and audited accounts, are still required to keep these records subject to the inspection of authorities.69 Tax returns of companies that were required to register for Sales and Services Taxes with the IRBM are also required to be filed within six months from the end of the fiscal year.70

VIII. LIMIT ON FOREIGN OWNERSHIP

Pursuant to the Economic Transformation Programme (ETP) launched by the government of Malaysia in 2010,71 12 key economic areas have been liberalized which allowed the ownership and participation of foreigners in the recognized industries, to wit: the Greater Kuala Lumpur/ Klang Valley; Oil, Gas & Energy; Palm & Rubber; Wholesale & Retail; Financial services; Tourism; Electronics; Business Services; Communication & Infrastructure; Education; Agriculture and Healthcare.72 The programme provided for 131 entry point projects and 60 business opportunities under the 12 National Key Economic Areas.73 In sum, most industries in Malaysia allow 100% foreign ownership and investment. However, small businesses are reserved solely for local citizens such as hair salon, laundry shop, textiles and clothing, photo frame shops, supermarkets, prepaid card businesses, internet cafes, which are not allowed to be wholly foreign owned.74

IX. INCENTIVES FOR INVESTMENT

The Malaysian government, with its well-developed legal and administrative system, guarantees incentives to its investors, which include a dynamic business environment, well-developed infrastructures, 75 Productive workforce and advanced technologies. Many tax incentives are also given to foreign investors specifically tailored to address every industry particularly the manufacturing and services sectors.76 There are however, major tax incentives common to all the industries: the Pioneer Status Tax

66

Guide Me Singapore, Setting Up a Company in Singapore vs Malaysia, available at http://www.guidemesingapore.com/researchreports/malaysia/company-setup-singapore-vs-malaysia (last accessed 2 March 2013). 67 Id. 68 Id. 69 Id. 70 Id. 71 Economic Transformation Programme, available at http://etp.pemandu.gov.my/Overview-@-Overview_of_ETP.aspx (last accessed 7 March 2013). 72 Economic Transformation Programme Annual Report 2011, available at http://etp.pemandu.gov.my/annualreport/12_National_Key_Economic_Areas-@-12_National_Key_Economic_Areas.aspx (last accessed 7 March 2013). 73 Id. 74 Malaysia Business Advisory, Type of Industries in Malaysia Foreigners are not Permitted, available at http://malaysiabizadvisory.com/typesof-industries-in-malaysia-foreigners-not-permitted (last accessed 7 March 2013). 75 Malaysian Investment Development Authority, Invest in Malaysia: Your Profit Centre in Asia, available at http://www.mida.gov.my/env3/ (last accessed 6 March 2013). 76 Malaysian Investment Development Authority, Invest in Malaysia, Manufacturing Sector, available at http://www.mida.gov.my/env3/index.php?page=manufacturing-sector (last accessed 8 March 2013).

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Incentive and the Investment Tax Allowance.77 The Pioneer Status Incentive gives the corporation a 5year partial exemption from income tax, whereby it is only liable to pay 30% of its statutory income.78 The exemption commences when the production level of the company reaches 30% of its capacity. 79 When the first incentive is not availed of, the company may apply for the Investment Tax Allowance where the company is given 60% allowance on its qualifying capital expenditure which comprises factory, plant, machinery and the like, incurred within 5years from the date the first qualifying capital expenditure is incurred.80

X. LEGAL PRACTICE AND LAND OWNERSHIP IN MALAYSIA

In 2012, the Bill for the Legal Profession Act was passed, although the Minister has not yet appointed a date for its effectivity. 81 The Act allows foreign firms to be set- up in Malaysia, provided that the lawyers practice only their national laws and that they reside in Malaysia for at least 182 days in a year to ensure that they are not Fly-in, Fly-out lawyers.82 Foreigners are allowed to own residential and commercial lots above RM 500,000 in value.83 Their acquisition is subject to the approval of the Foreign Investment Committee of the Prime Minister.84

XI. MALAYSIAS SINGLE WINDOW From the get-go the Malaysian government had shown strong interest in getting on board the ASEAN Single Window Policy. Beginning in the 1990s, steps were taken to ensure that Malaysia stayed competitive in the changing times by looking to use Information and Communication Technology (ICT) to move away from the traditional paper-based document systems towards a more paperless trade environment.85 By September of 2009, Dagang Net was appointed by the Government of Malaysia as the service provider to develop, manage and operate the National Single Window (NSW) for trade facilitation.86 Some of the critical success factors identified for Malaysias NSW are: 1) the Governments strong support of the NSW program; 2) Strong inter-agency collaboration; and 3) Public-private partnership.87 Today, more than two decades later, Malaysia continues to reap the benefits with the following statistics:

77

Malaysian Investment Development Authority, Invest in Malaysia, Incentives for Investment, available at http://www.mida.gov.my/env3/index.php?page=manufacturing-sector-2 (last accessed 8 March 2013). 78 Id. 79 Id. 80 Id. 81 The Malaysian Bar: Badan Peguam Malaysia, Legal Profession (Amendment) Act 2012, available at http://www.malaysianbar.org.my/legal_profession_amendment_act_2012.html (last accessed 8 March 2013). 82 Id. 83 Property Guru, Foreign ownership of property in Malaysia rules and requirements, available at http://www.propertyguru.com.my/propertyforum/foreign-ownership-of-property-in-malaysia-rules-an-8966 (last accessed 8 March 2013). 84 Buying a Property in Malaysia, available at http://realestatemalaysia.weebly.com/buying-property.html (last accessed on 8 March 2013). 85 UNNExT, brief No. 04, July 2010 86 Ibid. 87 Supra note 35

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The Malaysian National Single Window provides the following features: E-Permit; E-Permit STA; E-PCO; E-Manifest; E-Declare; and E-Payment E-Permit provides web-based import/export permit applications to relevant Permit Issuing Agencies, while E-Permit STA provides the same services for the Strategic Trade Act of 2010, enabling the application and approval of pre-registration and permits under the purview of the STA 2010. E-PCO is a web-based certificate of origin application and approval system that certifies the country of origin of a particular product. E-Manifest provides a web-based shipping community system to facilitate submission of manifests from the port users to the respective authorities. E-Declare is a web-based Customs declaration service that facilitates the preparation and submission of trade declarations. Finally, EPayment is a web-based duty payment service that enables preparation and submission of duty payments to Customs.88

Together, these six core services offered by the Malaysian Single Window have greatly improved the ease of doing business in Malaysia which is a noted boon to investors. Further benefits the Malaysian government has noted have been: 1) an increased access and speed to export markets as trade transactions are now undertaken electronically; 2) removal of red tape across Ministries and Government agencies; 3) Improved customer satisfaction via its 24/7 Careline Service, 7 Kedai EDIs (one-stop service centres) and 19 Facilitation Points (smaller centres) located nationwide; 4) Reduced manual labour costs as labour intensive tasks can now be done via automated electronic data system; Less administrative work as keyed data can now be used for different transactions and sent to all relevant parties; 5) Reduced risk of errors, increased time savings and higher efficiency; 6) Longer service hours to allow greater market activities and greater response to market demands; 7) Speedier processing of permit applications via the Network resulting in reduction of days required to export; 8) More accurate and increased collection of customs
88

Supra note 37

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duty payments which has risen to RM 1.8 billion annually; 9) Better compliance by trade communities as seen in the huge increase from 40 million electronic document transfers in 2003 to 275 million in 2009; 10) Use of technologically-advanced risk management tools for better control and enforcement purposes; 11) Provision of necessary enforcement and risk management tools that are on par with international standards; and 12) More effective and efficient management of resources, in particular reduction of manpower needs and hardware costs.89 XII. MALAYSIAS COMPETITION POLICY The Competition Act of 2010 (CA 2010) was enacted by the Parliament of Malaysia on May 2010 and came into effect on 1 January 2012. It is implemented by the Malaysian Competition Commission and its goals are to enhance: Consumer Welfare, Business Practices, and Economic Development.90 In a nutshell, Malaysias competition policy falls into two categories: 1) those that prohibit enterprises from engaging in anti-competitive agreements; and 2) those that prohibit them from abusing their dominant position. Anti-Competitive Agreements As outlined by the Malaysian Competition Commission (MyCC) there are four kinds of anti-competitive agreements, namely: 1) Price fixing; 2) Bid Rigging; 3) Sharing Markets; and 4) Limiting Production. Price fixing is the agreement to fix, directly or indirectly, the purchase or selling price or any other trading conditions.91 This is considered unfair to consumers and anti-competitive since prices (and other trading conditions) should be determined by the market forces of supply and demand and not by the collusion of the vendors. Bid rigging occurs when enterprises first agree amongst themselves who is to win the bid while the others either submit bids at unacceptably high prices, withdraw their bids, or refrain from bidding to enable the pre-selected enterprise to win. The winning bidder then rewards those who conspired with it by awarding them sub-contracts. This results in the most cost efficient enterprise not winning the bid and thereby drains the resources of the economy, consumers, and enterprises that do not participate in such bid rigging.92 Sharing Markets happens when enterprises divide amongst themselves the market either geographically or by customer types, operating only in areas they have been assigned to. The objective is to make sure that there is no competition for their products or services in a particular area or for a customer type thereby preventing consumers from shopping around for the best deal and, in effect, it forces them to buy from the enterprise which has been assigned to their area or customer type. 93 Limiting or controlling production occurs when enterprises collectively agree to limit or control production, market outlets, or market access, technical or technological development or investment. It is illegal because, as a result, supply will be reduced and prices will go up because there will be not enough supply to meet the demand.94 Abuse of Dominant Position It is worthy to note at the outset that CA 2010 does not penalize an enterprise for obtaining a dominant position. What is prohibited is merely abusing such position to the detriment of society as a whole. Examples of conduct indicative of an abuse of dominant position are: 1) Price discrimination; 2) Predatory behavior; 3) Refusing to supply; 4) Tied selling; and 5) Buying up scarce goods or resources.
Ibid. MyCC Competition Act 2010, July 2012 91 Ibid. 92 Id. 93 Id. 94 Id.
89 90

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Price discrimination occurs when enterprises charge higher rates for goods and services not due to any economic reason which results in an unfair outcome (think of the Boston Tea Party in U.S. history).95 Predatory behavior is also known as predatory pricing. The idea is that a large enterprise that can afford to weather losses reduces its prices below competitive standards in order to drive out other, smaller enterprises. Refusing to supply means that the dominant enterprise takes advantage of its position and refuses to supply a particular enterprise or group or category of enterprises in order to damage their business.96 Tied selling is where a supplier of one product requires a customer to also buy a second product, hence, the two products are tied together.97 Finally, buying up scarce goods or resources is self-explanatory yet it is important to note that the purpose must be to drive out competition or otherwise damage competitors. In fact, all of the above are not illegal per se but, instead, follow the rule of reason. That is to say, the above enumerated examples are not, in and of themselves, illegal. It is the purpose for which they are applied which renders them so. Take price discrimination for example. An enterprise may have a legitimate reason for discriminating its prices such as rising cost of fuel, trade embargoes affecting its wares, etc Such discrimination would not be illegal. But if its purpose is to target a specific group or class to discriminate against them then the same becomes illegal as a clear abuse of said enterprises dominant position. Available Remedies As earlier stated, the CA 2010 is implemented by the Malaysia Competition Commission. Under said law, an investigation may be initiated by the direction of the Minister, the MyCC, or through a complaint lodged with the MyCC.98 In conducting investigations, MyCC officers have wide powers to search and seize files, documents, accounts, computerized data, etc.; and require any person to provide information, documents or make a statement.99 Furthermore, the MyCC may accept an undertaking from an enterprise to do or refrain from doing anything, subject to conditions to be imposed by the MyCC. Should the MyCC accept the undertaking, the investigation will be closed without any finding of infringement and no financial penalty will be imposed. In this way, the CA 2010 gives enterprises one final chance to rectify their mistakes while at the same time giving them the benefit of the doubt that they were only honest mistakes to begin with. However, should the MyCC make a finding that an enterprise has engaged in anti-competitive conduct prohibited under its provisions, the enterprise can be fined up to a maximum of 10% of its worldwide turnover.100 Finally, parties may submit their complaints through a complaint form obtainable from the MyCC website.101 Complainants must ensure their form contains the necessary information about the complaint, information about the party/parties complained of, a brief description of the alleged infringement that is the subject matter of the complaint, and any other relevant information and supporting documents. The process is kept really very simple and all the necessary information is prompted for on the form itself. In this way, Malaysias Competition Policy provides a check-and-balance for any consumer to quickly and easily report an enterprise which violates Malaysias Competition Laws.

Id. Id. 97 Id. 98 CA 2010 99 Ibid. 100 Id. 101 www.mycc.gov.my


95 96

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